Several of the library's board members feel that it is illegal for the library to sell anything other than books and keep the money. They believe that the library cannot "ask for money". That function (selling items, asking for money, etc) is a function of the Friends group. We (the library board) can accept donations and NYS law indicates that we (the board) can sell books and keep the money but we cannot sell anything else, even if it is a gift basket that contains mostly books.
Is this true? Does this hold true for partnering with another non profit organization nearby who has a small gift shop? Can we (library board not the Friends) supply the gift shop and receive a portion of the profits?
The Friends do raise money for the library but it is difficult to pass this duty on to the Friends because it is difficult for them to part with money for the library board's needs. Hence our desire to do things on our own.
Any help with the rules regarding selling would be greatly appreciated!
Before we get to the main question (can libraries sell things to raise money?), we must refine something the member mentions in passing.
Yes, under Education Law §260, libraries can dispose of and sell used books—and the library trustees can retain the money. But since that law actually requires any library disposing of used books to hold such a sale (or to offer the books for free to another not-for-profit or government agency in their area), such revenue generation is more an obligation than a fiscal liberty. In other words: the board can sell the books and keep the money…but the power comes with strings.
As it happens, that is the theme of this entire answer!
So, is it “illegal” for a library to sell things and retain the money? No, it’s not, but it is complicated, and the complications warrant extreme caution before undertaking such a venture.
Let’s discuss this authority and its complexities.
The ability to sell library assets and retain the revenue is rooted in the statutory authority of library trustees.
As stated in Education Law §260: “Public libraries…shall be managed by trustees who shall have all the powers of trustees of other educational institutions [created by the Regents].” 
These “powers,” with some modifications, track the powers of boards created by New York’s Not-for-Profit Corporation Law. Two of those powers are:
1) the acquisition and sale of real property (land, buildings, easements); and
2) the acquisition and sale of personal property (books, cars, artworks).
For libraries, these powers come with a well-recognized financial autonomy. As the New York State Comptroller puts it:
With respect to library moneys…we note that public libraries are, for most purposes, fiscally autonomous from the sponsoring municipality (see, e.g., 1983 Opns St Comp No. 83-32, p 38). Thus, the ultimate control of the use, disposition, and expenditure of those moneys is vested in the library board of trustees even if the municipal treasurer is the custodian of library moneys. (Education Law, §§226, 259; 1987 Opns St Comp No. 87-84, p 125; see also Opn No. 87-49, supra; Opn No. 86-54, supra). (1993 Op St Compt File #93-15)
The practical effect of this autonomy has led the Comptroller to conclude (in two separate opinions):
The trustees of a city public library may sell two bookmobiles belonging to the library at either a public or private sale and may use the proceeds of such sale in such manner as they shall deem to be in the best interests of the library. (1983 Op St Compt File #83-9) [emphasis added].
It would seem that a library board of trustees may sell an unneeded library building, title to which is properly vested in the library board, without voter approval. (1980 Op St Compt File #125) [emphasis added].
So selling items—and retaining the resulting revenue—is part of a library board’s acknowledged authority.
Of course, this authority is not unchecked.  As the Comptroller noted in a 1995 Opinion, the fiscal autonomy of a public library is accompanied by a requirement for absolute transparency:
…General Municipal Law, §30(3) requires that an annual report of financial transactions, including those involving private source moneys (Opn No. 88-76, supra), be made by the treasurer of each public library. The report must be certified by the officer making the same and, unless an extension of time is granted, must be filed with the Office of the State Comptroller within 60 days after the close of the library's fiscal year (General Municipal Law, §30). In addition, the Education Law contains certain requirements for public libraries to report to the State Education Department (see Education Law, §§215, 263). Finally, as noted in Opn No. 88-76, supra, the town board, in determining the amount to be raised by taxes for library purposes, may take into account a library's private source funds and, therefore, may request from the library information concerning such funds. (1995 Op St Compt File #95-30)
In other words: the revenue raised by a sale can be retained, but must be spent in a manner consistent with the library’s plan of service, must adhere to relevant procurement and accounting procedures, and must be properly reported.
And there are more “strings:”
First, even when allowable, not all revenue generated by a not-for-profit entity is entitled to be free of tax. “Unrelated business income tax” (“UBIT”) is risked when commerce unrelated to the mission of a not-for-profit generates revenue. This is by no means a bar to a not-for-profit generating some revenue, but is a potential accounting burden, mission distraction, and cost.
Second, but perhaps most important, a library should never accustom the public to the notion of libraries independently and routinely generating revenue.
Operational funding is the function of a library’s supporting territory and the state. The public should never get the impression that libraries self-fund; libraries are by law a free resource serving their public, and should be funded.
And as emphasized in Comptroller Opinion #95-30, above, a funding entity can consider library-generated revenue and donations when it’s time to levy taxes. Translation: generate revenue at your own risk.
So: yes, the boards of public, school district, special legislative district, and association libraries have the power to sell things and retain the revenue, but if they do, each in its own way should be very careful to:
For a board seeking financial flexibility and responsiveness, these “strings” can be very limiting. This is where budgeting should help out.
Rather than conducting their own fund-raising, all boards should explore designating a small part of the library’s budget for board-identified needs (what the member calls “the board’s needs”), so long as those needs are consistent with the library’s plan of service and overall best interests, and the spending is appropriately documented and approved.
For instance, a board can budget for a strategic planning retreat, an emergency fund, an external consultant, or a unique event for the library. A library investment fund’s annual revenue can be reserved for a particular use. The board just has to bear in mind that all these actions will be reported in their publicly disclosed library budget, and so must be easily perceived as mission-related, prudent, and proper.
This why library budgeting is both an art, and a science.
Now, to the final part of the member’s question. These issues of compliance, transparency, flexibility, and propriety are the very reasons why public libraries have “Friends” (not-for-profit corporations with missions to support a library).
Every library board of Trustees should feel they can look to their “Friends,” for mission-aligned support. In an ideal world, the board-approved library budget handles all operational needs, while the Friends’ budget helps out with added layers of special events, acquisitions, and programs. And when planning for capital acquisitions and improvements, it’s a strategic all-hands-on-deck.
Of course, we don’t live in an ideal world; the operations of two separate not-for-profit entities can be tough to coordinate and align. With that in mind, I encourage every library board to review the “Friends” section in most recent NYLA “Handbook for Library Trustees in New York State.” This invaluable resource sets out solid tactics for cultivating and reaping the benefits of a Library/Friends relationship (something it’s easy to write about, but often hard to do).
Thank you for your question.
 If that library receives over $10,000.00 in state aid.
 We’ll use public libraries as our example, but the complexities I list impact ALL NY-chartered libraries. That said, association libraries have fewer budget-reporting and procurement-related obligations.
 In New York, any sale of real property or donated assets by a not-for-profit corporation should be assessed to see if it requires approval by the New York State Attorney General. See? More strings.
 Many, many things, the first three being: the library’s unique charter, bylaws, and fiscal policies.
 For a great breakdown on the fundamentals of library budgeting, visit: http://www.nysl.nysed.gov/libdev/trustees/handbook/chapter11.htm